WASHINGTON
— A no-holds-barred battle now before the US Senate will determine whether new federal money for America's schoolchildren will go primarily to parents, in the form of tax breaks, or to states and cities to spend on more teachers and renovated schools.

The current floor fight, set to resume action tomorrow, reveals sharp philosophical differences between the two parties - not only over education policy, but also over whether improving the nation's schools is best spurred by parents, through school choice, or by government.

Federal spending represents just a fraction of the money spent on schools in this country. Yet as this fall's elections approach, each party wants to be able to take credit for riding to the rescue of schoolchildren everywhere. Polls consistently say education ranks high among the public's priorities.

A bill sponsored by Sens. Paul Coverdell (R) of Georgia and Robert Torricelli (D) of New Jersey would do just that by expanding the new "education IRAs" to include grammar school and high school. Currently, a parent, grandparent, or other sponsor can put aside as much as $500 a year in a special savings account and spend the money, including any gain, tax-free on college expenses. The Coverdell-Torricelli proposal would raise the annual contribution limit to $2,000 and add elementary- and secondary-school costs - including expenses at public, private, or parochial schools.

Spending through saving

"Education savings accounts would direct over $5 billion in new money to American education by allowing parents to save their own money for critical school expenses, including home computers, tutoring, after-school programs, and countless other education costs," Senator Coverdell says.

The GOP measure now before the full Senate would also grant tax-free treatment to savings in state prepaid-tuition programs and extend the current tax exemption for some employer-provided education assistance. It also contains tax relief to help local authorities build new schools. A similar bill has passed the House, but President Clinton threatens a veto.

While several Democrats support the proposal, most decry it, charging it favors private schools.

"This bill turns its back on the nation's long-standing support of public schools and earmarks tax dollars for private schools," says Sen. Edward Kennedy (D) of Massachusetts. "It's an unwarranted step in the wrong direction for education, for public schools, and for the nation's children."

The $7 solution?

Democrats also deride the GOP proposal as a "seven-dollar solution," citing an analysis by Congress's Joint Committee on Taxation that the average family would get an annual tax benefit of $7. Low-income families couldn't afford to save the money in the first place, they say. The GOP proposal is "a regressive tax policy masquerading as aid to education," says Education Secretary Richard Riley.

"The fundamental question is, 'Is that all there is?... Is that the best you can do?' " says Senate minority leader Tom Daschle (D) of South Dakota. "We have problems that go way beyond what $7 can address."

Republicans respond that 70 percent of those who would benefit from the Coverdell plan earn $75,000 a year or less. Much of the program's benefit is the accumulation of tax-free gain, they say. A family contributing $2,000 a year from the time a child is born would amass $14,574 for education expenses after six years and $39,611 after 12.

In lieu of the savings accounts, which would provide $1.6 billion in tax relief over 10 years, Democrats propose a program costing $14 billion over the same period. They would provide states and local governments with money to hire 100,000 new teachers and reduce class sizes to 18 students per teacher through Grade 3.

In addition, they would let local authorities offer tax-free bonds for school modernization and repair.

"Congress should be building new schools, not new tax shelters for the wealthy," Senator Kennedy says.

Republicans oppose many of these measures as a Democratic attempt to expand the federal role in education, a role many Republicans want to limit or reduce in favor of local control.

Last week, Democrats beat back a GOP move to end debate on the bill, in an attempt to gain leverage to offer more Democratic amendments.

Majority leader Trent Lott (R) of Mississippi says he's willing to be "flexible," but he questions the Democrats' motives.

"The truth of the matter is, [minority leader] Daschle doesn't want a bill. He just wants to delay it," Senator Lott charges.

Another cloture vote is scheduled for tomorrow evening. Lott says he has the votes to block a filibuster; a Senate Democratic aide confirms the Democratic leadership is increasingly worried that Democrats who support Coverdell-Torricelli will go ahead and vote to end debate. Negotiations are continuing today on how many and which amendments each side can propose.

It's possible a hybrid bill containing elements of both parties' approaches to school funding could emerge. Whether the House and Mr. Clinton could accept that result is far from clear.